Homestead exclusion for school taxes gets a public airing

Homestead exclusion for school taxes gets a public airing

Last week the House Finance Committee held a public hearing on legislation that would eliminate school property taxes on homestead property by raising the state’s personal income tax.

Homestead exclusions were approved by Pennsylvania voters in 1997 and permitted local taxing bodies (counties, municipalities and school districts) to enact exclusions that did not exceed 50 percent of the median assessed value of a homestead in the taxing jurisdiction.  That language was amended by another ballot question last fall and now exclusions of up to 100 percent of the assessed value of the homestead are permitted.

Here’s how the proposal would work: the income tax rate would increase from 3.07 percent to 4.79 percent (generating around $7.1 billion based on recent collections).  The money from the increase would be held in an account and school districts would have to opt in to receive a proportional share of the funds to replace the property taxes that would be generated from homestead property.  Combined with the existing revenue from slot machine gaming that is used for homestead exclusions, proponents say there will be enough money for a complete elimination of property taxes on homesteads.

Income earners who are also homeowners would see a net savings or loss depending on their income and their school property tax bill.  Income earners who are not homeowners would see a tax increase as a result of the shift.  School property taxes on non-homestead property would stay in place, as would non-property taxes levied by school districts.

There are questions to be raised: is the state going to adjust the portion of the personal income tax to account for faster growing property values? What about the continued presence of school strikes that drive up the need for more money locally?  And what does the business community, especially those that can’t deduct their property taxes against their tax liability, think of the proposal and what effects it might have on the overall business climate?